HMRC has confirmed that its ‘specialist compliance team’ focused on IR35 investigations (which looks for the underpayment of tax and NI where a business has engaged individuals as self-employed contractors, through personal service companies rather than employees) has a headcount of 45 full time staff, says multinational law firm Pinsent Masons.
According to information provided by HMRC, that team also has access to additional manpower and resources outside its core team.
Using the IR35 rules, HMRC has led a lengthy and at times controversial crackdown on arrangements where individuals are paid as self-employed contractors, rather than as employees, which HMRC considers has led to an underpayment in income tax and national insurance.
HMRC’s previous IR35 investigations have led to several high-profile cases, including with Gary Lineker, the sports presenter, whose case was heard in a tax tribunal over a disputed £4.9m in tax. Other high-profile cases brought by HMRC include those against media personality and talk show host Lorraine Kelly and ‘Loose Women’ TV presenter and journalist Kaye Adams.
The investment in HMRC’s specialist IR35 compliance team follows changes to the rules in April 2021, which shifted compliance responsibilities from the individual contractor to the business engaging the contractor. Under the new IR35 regime, businesses are responsible for determining the employment tax status of contractors who work through intermediaries, such as personal service companies and paying any employment taxes that may be due.
The new rules have created significant compliance challenges for businesses that rely heavily on a flexible workforce. IR35 advisory lead and legal director, Penny Simmons, said: “Since the changes to IR35 were introduced in April 2021, HMRC has consistently highlighted the need for businesses to introduce IR35 compliance programmes – to identify limited company contractors across their supply chains. For businesses with complex supply chains that rely heavily on contractors, this is not always straightforward since contractors may be engaged indirectly through third parties, such as labour agencies and subcontractors.”
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By GlobalDataTax disputes and investigations head, Steven Porter, added: “The scale of HMRC’s dedicated IR35 compliance team shouldn’t come as a surprise. HMRC has made clear its desire to maximise tax revenues in this area. It has now built a lot of bandwidth that allows it to undertake more investigations.
“Businesses should seek professional advice as soon as they receive notice from HMRC that it is reviewing their IR35 compliance procedures – although initial communications from HMRC may not take the form of an official enquiry, it is very possible that they will develop into one.”
